Commissioners highlight governance issues in first report on Birmingham

Commissioners have said that governance problems lie at the "root" of Birmingham City Council's difficulties in their first report on the local authority since it issued a section 114 notice last year.

The report, which was delivered to the Ministry of Housing, Communities and Local Government in April 2024 and made public today (22 October), also raised concerns that members and officers appear to think external bodies "cannot understand the exceptional characteristics and problems of the city".

The report blamed Birmingham's financial position on concurrent financial crises that included an equal pay liability "arising from a set of deliberate decisions, the consequences of which were not addressed; a colossal failure of a crucial IT implementation; disingenuous and dysfunctional budgeting, and a fundamental inability to identify and mitigate strategic risk".

According to the commissioners, who are led by Max Caller, three urgent steps must now be taken over the next two years.

The steps include resolving the council's equal pay liability, identifying and delivering a £300m savings programme, and releasing £500m in assets over 12 months, followed by a further £250m the subsequent year.

Should the leadership fail on any of these points, the commissioners will step in and exercise their full powers, the report warned.

Governance problems were heavily referenced in the report, with commissioners noting that that "at the root of BCC's difficulties lie problems of poor governance".

"These are well described in the Centre for Governance & Scrutiny's (CfGS) Independent Governance Review, published in November 2023, whose findings were accepted in full by the Council," it said.

"These findings are, in essence, a repeat of those of the Kerslake Review ten years previously, which were also accepted by the authority at that time.

"Very similar issues were reiterated by the SEND Commissioner in 2022 following which BCC made what turned out to be another empty commitment to review its governance."

The history of failing to implement changes "indicates a prolonged or cultural reluctance to accept the need for or difficulty in implementing change".

Commissioners also drew attention to poor officer-member relations, inappropriate personal and professional behaviours, a failure to sustain a consistent view of leadership and its demands and priorities both between members and officers and between officers, and a failure to follow through on policies once agreed.

The commissioners also uncovered "challenging" relationships with some staff and their trade unions, which raised questions about the transparency of the extent of union influence upon the political leadership of the council.

"This ranges from the individual sponsorship of individual councillors through to the determination of key strategic decisions," the report said.

Commissioners said they are especially concerned that a major block to governance reform is the council's "deep sense of the city's uniqueness".

"It implies that external bodies cannot understand the exceptional characteristics and problems of the city: from size to demography; the nature of the economy; the scale of deprivation and the complexity of racial diversity."

"This mantra becomes a well-argued excuse arguing that ordinary rules do not and will not apply. There is a tacit understanding that this unique city should continue to develop its unique approach to governance.

"In reality, every place and every council is unique, which is the very reason for having fixed and robust frameworks and rules for doing things properly and fairly."

Commissioners have instituted a 'governance board' but warned that the board cannot become a substitute for the council delivering its own programme of governance improvements.

The report also warned that the interim status of Birmingham's chief executive and monitoring officer risked the goals of the governance programme and called for both roles to be made permanent. The council is currently recruiting for a permanent Director of Legal & Monitoring Officer.

Elsewhere, the commissioners reported "concerning behaviours" from members which go unchallenged and said they have received whistleblowing complaints about the way in which grievance, sickness and discipline processes are managed and partiality in appointments.

Turning to decision-making, the report noted that Birmingham has a culture of unrecorded informal decision-making and sometimes fails to follow through with properly made decisions.

"This has created a climate in which political activity, across the council, is often performative and not structured within decision frameworks or linked to action," the report said.

"It has also created and embedded a culture of mistrust and cynicism between members and officers on a number of critical issues."

In addition, there has also been a lack of clarity about declarations of member interest or of conflicts in those interests, according to the report.

Commissioners said the implementation of the 'Oracle' programme, which was partly blamed for the council's financial position last year, was the "poorest" 'Enterprise Resource Programme' deployment they had seen.

They added that the problems and delays facing the programme caused a serious lack of trust between members and officers.

The intervention identified a lack of effective governance and control of the Oracle programme, a severe lack of Oracle skills, experience and capabilities across the council, with a lack of direction and ineffective leadership compounding the problems.

While Oracle is yet to be implemented, the commissioners noted 'early signs' of progress.

The report went on to highlight progress, including agreeing on a budget, developing an improvement and recovery plan, working on an asset disposal programme, and good engagement from officers with the commissioners.

However, it also noted that "too much of the progress that has been made, in all areas of the council's improvement, has been under the close supervision and direction of the commissioners".

It added: "BCC's historic failure to manage its finances and operations in a way the people of Birmingham have a right to expect, points to a systemic failure of oversight and good governance to which officers and politicians alike must take responsibility.

"To remedy these chronic defects will require clearer, stronger political leadership and officer engagement, allied with a far greater shared sense of urgency than has been demonstrated to date." 

Birmingham has received up to £1.25bn in Exceptional Financial Support (EFS) from the Government, the majority of which is to cover the council's equal pay liability. In total £240m is available to address the 2024/25 budget gap.

The commissioners said the size of the budget gap reflects both that the approved 2023/4 budget "was based on assumptions that were impossible to justify, and a very poor track record of savings delivery in this and previous years".

They added: "Serious questions must now be asked about statutory roles, including the legality of a section 25 statement that was written for a budget that provided limited room for inflation, failed to adequately provide for the equal pay liability, and a meagre provision for an Oracle implementation that was in freefall."

Elsewhere, the report found that the system of internal control and assurance "completely failed" in the run-up to the section 114 notice being issued.

This failure included the operation of internal audit and risk management and the governance framework surrounding it, including the Audit Committee.

The commissioners noted some progress in Birmingham's equal pay liability and its root causes.

Commenting on the council's efforts to settle its outstanding equal pay disputes, partly blamed for bankrupting the local authority, the commissioners said there had been "some progress".

"In October 2023, Commissioners arrived to find the council ill-equipped, unprepared, and grossly under-resourced to carry out the volume of work required.

"In addition, BCC were in dispute with Trade Unions on the job evaluation process and with no coherent plan to resolve the changes required to bring the historical and continuing Equal Pay Liability to closure."

The relationship between trade union representatives and council officers was adversarial and lacking trust, but the commissioners said they had since facilitated a better relationship.

In addition, an equal pay programme has been developed to tackle the root causes of the issues and handle any litigation.

The commissioners said: "This first 6 months has really been spent understanding quite how bad parts of BCC are. Until this is acknowledged by every Member and Senior Officer and that they have played a part in this, the improvement journey will not develop critical momentum.

"There are signs that the political leadership recognise this and want to take control of the council's destiny. When they are partnered by a Head of Paid Service committed to seeing through the changes over the period of the intervention, progress will be made.

"It will not be delivered by grand projects but painstaking attention to detail and following up every misstep and failure to redirect efforts to deliver success."

In his response to the commissioners' first report, the Minister for Local Government and English Devolution, Jim McMahon, asked that they provide a further assessment of Birmingham's progress in January.

He said the report “clearly sets out the scale and severity of the challenges” which led to intervention.

The minister added: “There remains more that needs to be done, but I am keen that the intervention moves as quickly as possible to a model based around a more equal partnership with the council, so that it is increasingly able to lead its own recovery.”

McMahon said: “From now on it is essential that Birmingham City Council continues to seek a resolution to its equal pay liabilities, delivers on the required savings, sets a balanced budget for 2025/26 and improves services, many of which are not currently fit for purpose.”

Responding to the report, the leader of Birmingham City Council, Cllr John Cotton, said: "We continue to engage constructively with the new Government, and like councils across the country, are awaiting both this month's budget settlement and a local government finance settlement later in the year which will set out a one-year emergency package of support for local councils.

"The Government is also committed to a multi-year settlement following next year’s spending review which will give councils much needed clarity and allow us to plan for the future.

"Nevertheless, we face another very difficult budget, and it remains clear that the pace of change must further increase, as further savings are identified, and we transform services. Our new Managing Director Joanne Roney is focussed on that challenge and there will be no let up as we work together to get the council back on track."

Adam Carey